Throughout the year, 5.7% of balances were
transferred, which is the highest level since the
inception of the index in 1997. On average, Hewitt said,
only 3.3% of balances are transferred annually.

Another historical record set by the transfer
activities in 2008, according to Hewitt, was the amount
of equity transfers. A total of $6.3 billion was moved
out of equity investments during 2008, more than twice
the second highest annual equity outflow ($2.9 billion in
2002). In addition, 11 out of 12 months in 2008
experienced equity outflows – the highest of which
occurred in January and September.

Because of both transfers and market returns,
participants’ overall equity allocation decreased by
14%, from 66.9% at the end of 2007 to a historical low
level of 52.9% at the end of 2008. It is the largest
decline during a one-year period, since the beginning of
the 401(k) index.

The Flight from Equity

International funds were the biggest losers in
2008, with $1.9 billion shifting out of this asset class
– reversing the trend of inflows into these funds seen
from 2003 to 2007, where more than $4.2 billion flowed
into this asset class. As a result of poor market
performance and significant outflows in 2008, the asset
allocation in international funds dropped for the first
time in several years, from 9.8% at the end of 2007 to
6.1% at the end of 2008.

Large U.S. equities experienced the second largest
outflow of $1.7 billion in 2008 – also the largest annual
outflow for this asset class since the beginning of the
index. The holdings in this asset class declined by
nearly 5% to 15.7% by the end of the year.

Balanced funds lost approximately $1 billion in
transfers, and Lifestyle funds saw $529 million in
outflows. Similar to international funds, 2008 reversed
the trend of inflows to lifestyle funds between 2003 and
2007, when $1.6 billion moved into this asset
class.

As expected, the three fixed income asset classes
received the largest inflows. GIC/Stable value funds saw
$5.3 billion in inflows during 2008 – the largest inflows
ever into this asset class. As a result, the holdings in
this asset class went up more than 11.6% to 32.3% by the
end of 2008. Bond funds received $1.2 billion in inflows
in 2008, followed by money market funds with $459
million.

For the month of December 2008, transfer activities
were very modest, according to Hewitt. Only 0.04% of
balances were transferred on a net daily basis, and the
direction of the monthly transfers was slightly equity
oriented. However, $187 million moved out of equity
investments during the month.

More than half of monthly inflows (51.74%) went to
GIC/Stable Value funds, while Bond funds received 42.97%
of monthly inflows, according to Hewitt data. Company
stock funds experienced the biggest outflows (33.58%),
followed by Lifestyle/Pre-mix funds (15.57%) and Balanced
funds (14.53%).

Almost a quarter of participant-only contributions
for the month went into GIC/Stable Value investments
(24.04%). Lifestyle/Pre-mix funds took in 21.65% of
participant contributions and Large U.S. Equity received
16.68% in December.

As of the end of the month, GIC/Stable Value funds
held the largest share of participant balances (32.28%),
followed by Large U.S. Equity (15.7%) and Company Stock
funds (14.8%).